Zhuzhou CRRC Times Electric Co., Ltd. (HKG:3898) Is About To Go Ex-Dividend, And It Pays A 2.9% Yield

Readers hoping to buy Zhuzhou CRRC Times Electric Co., Ltd. (HKG:3898) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Zhuzhou CRRC Times Electric's shares before the 2nd of July in order to be eligible for the dividend, which will be paid on the 8th of August.

The company's next dividend payment will be CN¥0.78 per share, on the back of last year when the company paid a total of CN¥0.78 to shareholders. Based on the last year's worth of payments, Zhuzhou CRRC Times Electric stock has a trailing yield of around 2.9% on the current share price of HK$29.30. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Zhuzhou CRRC Times Electric has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Zhuzhou CRRC Times Electric

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Zhuzhou CRRC Times Electric paying out a modest 34% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Zhuzhou CRRC Times Electric paid out more free cash flow than it generated - 120%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Zhuzhou CRRC Times Electric does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Zhuzhou CRRC Times Electric paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Zhuzhou CRRC Times Electric's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Zhuzhou CRRC Times Electric's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Zhuzhou CRRC Times Electric has delivered an average of 8.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is Zhuzhou CRRC Times Electric an attractive dividend stock, or better left on the shelf? Earnings per share have barely grown in this time, and although Zhuzhou CRRC Times Electric is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. In summary, it's hard to get excited about Zhuzhou CRRC Times Electric from a dividend perspective.

Curious what other investors think of Zhuzhou CRRC Times Electric? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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